In many respects Myanmar - where ATMs only recently debuted - is virgin economic wilderness. On the cusp of a 21st-century gold rush, many hurdles lie ahead for foreign investors, which SIIA Director and Nominated Member of Parliament Nicholas Fang examines in this first of a two-part special report for TODAY newspaper. Part 2, "The calm before the tumult", is available here.
This commentary was originally published in TODAY on Thursday, 16 August 2012.
The small nation of Myanmar has been making headlines around the world almost daily, the excitement split equally between the country's nascent political awakening after five decades of military rule and its seeming economic potential.
Observers around the world, and indeed businesses and corporations looking to enter one of the last economic wild lands in the region, have been flocking to the "Land of the Golden Pagoda" to seek out opportunities in the country of almost 60 million people and bountiful natural resources.
Still, misconceptions and stereotypes about the country abound.
Preparing to travel there, I was warned several times about a backward country with bribe-seeking officials, strict security measures on the streets enforced by armed soldiers, and a generally restrictive environment.
Many of these notions no longer hold true - if, indeed, they did at all in recent years. For example, Yangon's airport is clean and efficient, comparable to other more developed South-east Asian airports, and it took just one hour from the plane touching down to exiting the terminal, with nary a cash-filled brown envelope in sight.
Some inconveniences remain, such as a strict requirement for pristine US dollars (even minor creases are frowned upon) for changing into the local kyats, at notoriously variable rates. Credit cards and travellers' cheques are virtually unheard of even in large establishments and hotels.
Departing travellers converting back to greenbacks, on the other hand, get the most worn of notes. When I protested, the moneychangers whined that it would be easier for me to use the crumpled US currency outside of Myanmar. With a weakening kyat rumoured to be on the horizon, holding on to the currency is not recommended.
A KARMIC SOCIETY
There is little, otherwise, that sets Myanmar apart from Cambodia, or Laos, or even Vietnam as it was some 15 years ago.
Cars of varying ages and states of repair clog the streets, although the motorcycles, scooters and bicycles that throng the roads of other cities in the region have yet to catch on in Yangon.
There are few signs of high-rise buildings, either residential or commercial, and there are still clear indications of the low standards of living in a country where a third of its people live on less than one US dollar a day. Barefoot youths kick footballs made of crumpled plastic bottles by the side of the road. Makeshift shelters of corrugated aluminium sheets spring up next to construction sites, as temporary homes for labourers.
Outside of the city of Yangon, many Myanmar citizens still live off the land as farmers in a distinctly agrarian society.
In this predominantly Buddhist land, the people are warm, welcoming and seem sincerely happy to see visitors. Their kind and forgiving nature has been attributed to the pervasive belief in "karma", or the attribution of all current circumstances to actions done in the past. Locals joke that they put up with harsh military junta rule for so many years because citizens chalked it up to sins of a past life for which they were being punished now.
THE NEXT ECONOMIC FRONTIER
But the calm and peace of the land renowned for its many golden pagodas look set to give way to flocks of investors, businessmen and tourists. The International Monetary Fund (IMF) is calling it possibly Asia's "next economic frontier".
Earlier this year, the IMF judged that Myanmar could surge to a high level of growth if it leveraged on its rich natural resources, strategic location near India and China, and a young labour force.
IMF forecasts put its economic growth at some 5.5 per cent in the 2011-2012 fiscal year and 6 per cent in 2012-2013 on commodity exports and higher investment. But this is contingent on issues like the country's multiple-exchange rate system being fixed.
More recently, the World Bank pledged US$85 million (S$106 million) in development grants to Myanmar and assistance for the state to clear its arrears, as part of efforts to support political reforms. This came as the World Bank and the Manila-based Asian Development Bank both opened offices in the impoverished country. The new grants will go to schemes that will allow communities to decide whether to invest in schools, roads, water or other projects.
However, amid the wave of optimism sweeping the country, doubts and concerns have been raised over whether Myanmar is the easy gold mine many believe it to be.
LACKING IN INFRASTRUCTURE
Chief among these issues is whether the domestic infrastructure is ready to support massive development and investment activities.
Outside the main hub of Yangon and the new administrative capital of Naypyidaw, basic support infrastructure such as a good road system, stable electricity supply and telecommunications network are not guaranteed. For now, only one Singapore telco, M1, has a tie-up with a service provider in Myanmar to offer roaming services to visitors, and fast Internet connections are a rarity.
As for the dismal power supply, since protests swept several big cities in May, the Myanmar government has been in talks with foreign firms to overhaul its dilapidated national grid - which generates an unreliable supply of electricity to only 25 per cent of the population, according to United Nations estimates. The aim is to raise that to 75 per cent within a decade - a feat that would cost up to US$20 billion.
Upper-end hospitality facilities are scarce. The few hotels in Yangon offering international standards of business accommodation have begun to charge up to several hundred dollars a night for rooms that were half the price or less some 12 months ago. Occupancy rates have surged to about 85 per cent, compared to 35 per cent just two years ago.
Singapore's Keppel Land (KepLand) opened its first hotel in Myanmar in 1993 and now owns and manages two hotels in Yangon and Mandalay. Head of regional investments Tan Swee Yiow says: "At Sedona Hotel Yangon for example, we have seen an increase of about 30 per cent in both corporate and leisure visitors from Singapore alone since 2011."
He noted that hospitality has been identified as one of Myanmar's key growth sectors, given its plans to host the World Economic Forum for East Asia in 2013, the South-east Asia Games that same year, and the ASEAN Summit in 2014.
But there is concern among hoteliers themselves that the local industry is not ready to cope with the high demands of anticipated mass tourism.
An UNDERDEVELOPED BANKING SYSTEM
What could also hinder rapid growth and development is the country's underdeveloped banking and financial system, a concern raised by many businessmen in Myanmar.
Mr Philipp Hoffmann, General Manager of JJ-Pun - a joint venture between international industrial enterprise group Jebsen & Jessen South-east Asia and Myanmar's Serge Pun and Associates Group - says the lack of a proper banking system is an obstacle for businesses operating in the country, especially small and medium-sized enterprises (SMEs).
"People really need access to cash and loans if the business environment is going to improve," he told TODAY. Mr Ivan Pun, Corporate Development Senior Executive at Singapore-listed Yoma Strategic Holdings, echoed this sentiment, adding that reform of the banking sector is crucial if SMEs and entrepreneurs are to be able to succeed in Myanmar.
Myanmar's banking system is among the world's most antiquated, crippled by years of sanctions and disastrous socialist policies. Anyone seeking to move funds overseas usually requires help from ancient "hawala" underground money-transfer agents. This effectively freezes Myanmar out of the global banking system.
Curiously, the banks there have traditionally offered high savings rates, which have sucked cash out of the economy and have made it hard to realise decent returns on investments.
The country has also been subject to a United States-imposed "web" of overlapping sanctions since 1988, when the former military junta violently cracked down on student protesters. The Obama administration announced earlier this year it would suspend these sanctions in recognition of the country's dramatic political changes. This allows American investments and financial services into Myanmar for the first time in decades.
But the suspended sanctions remain on the books to ensure no backsliding on the reforms, and US firms wanting to do business in Myanmar, including banks, must apply to Washington for a "general license" - a step that Myanmar's central bank expects could take weeks or even months.
As a result, Western financial services are still non-existent in Myanmar and international credit and debit cards remain off limits - a frequent source of irritation for tourists and visiting business executives.
Change is in the air, though, as private banks have recently begun rolling out automated teller machines, although these are still few and far between. Their presence is revolutionary, however, for a people who previously had to haul sacks and suitcases of cash to banks.
More improvements are promised and numerous foreign banks - including Singapore's UOB, DBS and OCBC - are lining up to enter the Myanmar market. Foreign giants Visa and MasterCard could also introduce international banking within the next year.
LACK OF HUMAN CAPITAL
Businessmen operating in Myanmar told TODAY that another major challenge to growth is the lack of talented individuals to take up the burgeoning number of jobs already being created in the domestic economy.
Indeed, the institutions necessary for developing human capital internally - such as the university system - are still reeling from decades of neglect under the former military regime, and therefore lack the capacity to field a well-trained workforce.
Some companies operating in Myanmar have proactively chosen to provide training and upgrading in a bid to ensure that a sustainable pipeline of staff for their operations is created.
"As an employer, we have decided to take on an educational role to make sure our people are prepared," explained JJ-Pun's Mr Hoffmann. "We do this through in-house training and seminars, cross-training and exchanges with our other regional offices."
Jebsen & Jessen has some 50 subsidiaries and associate companies across South-east Asia. Mr Hoffmann added that JJ-Pun, staffed completely with Myanmarese excluding himself, is looking to recruit from among people who have left the country in a major brain drain.
RETURNING DIASPORA CRITICAL to progress
The Myanmar diaspora, who left their homeland to escape the oppressive military regime, numbers over 100,000 in the US and rises into the millions in Myanmar's neighbours such as Thailand and Malaysia. Significant numbers also reside in Tokyo, Japan, as well as in Singapore, Indonesia, Australia, India and Europe.
Many of these young individuals represent potential skilled labour that could be tapped as engines of growth for the country. What is encouraging has been increasing numbers of the Myanmarese diaspora being drawn back to the country in the wake of the recent political changes.
Overseas Myanmarese could play a constructive role in the country's future growth. For one, their understanding of Myanmar's languages and cultures could facilitate a better understanding of the economy, of specific local requirements, and of how to enter into business dealings free from the pitfall of corruption.
With millions of dollars poised to enter the country, knowing where the money is going and ensuring it is put to good use, will be critical.
Yoma recently conducted a recruitment drive in Singapore in the hopes of luring back young Myanmar nationals to work in their home country. The company says this met with good response. "We received interest from an interesting demographic of people across different industries, like engineers, chemists and sales and marketing executives," said Mr Pun.
A government official who declined to be named said these returning Myanmarese would be critical for sustainable economic growth, but they needed to understand the complexities of their once-and-future homeland.
"We need them to understand Myanmar well. If they try to move too quickly, or are too insensitive, it could complicate things," she said. She added that President Thein Sein had made it clear that the returning diaspora would be welcomed back - but it remains to be seen whether the value proposition is attractive enough to bring them all back.
But perhaps the key stumbling block to a rapidly resurgent Myanmar is the lack of transparency and clarity in outlook of both the country's political regime and its regulatory framework.
Critics have questioned President Thein Sein's ability to tread the fine line between the interests of the country's military leaders, who still have influence in the government, and the opposition's drive towards greater democracy as represented by Ms Aung San Suu Kyi.
But there is a growing sense among locals that a reversion to junta rule is unlikely. A young executive working for a foreign company said the widespread expectation is that the generals will continue to enjoy their retirement as long as they are not threatened with consequences for their actions while in power.
"They're not keen to try to fix a government that doesn't work anyway," he said. His optimism in the permanence of change is a reason why he returned to Myanmar after more than a decade working abroad. He declined to be named.
While the rest of the world waits to see how Myanmar's political landscape shapes up in the months ahead, a greater concern is the lack of clear and current information pertaining to the country's various investment laws, rules and regulations.
Mr Hoffmann called this the "biggest challenge" when operating in the country. "A lot of things are not so transparent, and we often have to check on the latest legal developments and laws. We are still working things out and it will take time to get things right, but the country is heading in the right direction."
Myanmar's new foreign investment law is expected to be completed within the next two months, and is one of several crucial pieces of legislation that must be rolled out in coming months if the country is to meet foreign firms' wants and needs, following the lightening of sanctions.
The proposed law is expected to ensure that local and foreign investors are on equal footing. Reports in local and foreign media have speculated that the amended Foreign Investment Law will no longer require foreigners to establish businesses with Myanmar citizens and will grant them a five-year tax holiday, among other measures.
Significantly, the law is also expected to prohibit nationalisation of a foreigners' business during the period allowed in the contract or extended in the contract, other than by giving compensation based on current prices in the market in the interest of the general public.
For property developers like Singapore's KepLand, clearer rules and more investor-friendly laws would be a boon to drawing more investment from overseas players.
Mr Tan said: "There is a need for the Government to consider reviewing policies and laws that will create a more conducive investment environment for foreign property developers. For instance, there is currently no strata title law to regulate homebuyers of condominium units."
He added that, despite challenges encountered over Kepland's 20 years in Myanmar, he continued to believe in the country's long-term fundamentals. "We are monitoring the developments in Myanmar and may explore investment opportunities to grow our presence further in the property market which is expected to improve," he added.
Indeed, reporting its first-quarter results just this Tuesday, Yoma Strategic attributed the bulk of its 130.7-per-cent revenue boost to the sales of housing and land development rights - with selling prices up by 20 to 25 per cent, it said.
In short, the view of the majority of Myanmar watchers and interested investors can be summed up thus: A broad optimism, tempered by a cautious approach to an untamed economic wilderness with the promise of fast and vast growth.
It seems unlikely that the country will backslide but whether it will see uncontrolled and chaotic economic expansionism driven by opportunistic foreign investment, or the "socially responsible" growth encouraged by Ms Suu Kyi, remains to be seen. What is clear is that the Myanmar growth story will be one worth watching in the decades ahead.